EconSouth - Fourth Quarter 2007

The Southeastern Economy in 2008

Agriculture Grows Despite Drought

cotton plantSevere drought, the housing slump, and a weak dollar were the major factors affecting the Southeast's agriculture sector in 2007.

Poultry spreads its wings
Poultry is the most important cash-producing industry in the Southeast, generating more than $8 billion in cash receipts in 2006. More than 90 percent of the region's poultry production and income comes from Georgia, Alabama, and Mississippi (see the chart).

In 2007, poultry growers benefited from higher prices and rising demand from growing markets such as Russia, China, and Mexico. However, increased use of crops such as corn for ethanol production drove feed prices up dramatically in recent years and affected poultry producers' margins. As they cut back on the more expensive feeds, they experienced a lower average yield of meat per bird, lowering overall production in 2007. However, higher prices offset the lower production, so most poultry segments in the Southeast saw higher profits in 2007 than in 2006, according to contacts at the University of Georgia.

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Multiple challenges confront greenhouse nursery farmers
Greenhouse nursery crops in the Southeast produced $2.8 billion in revenues in 2006 and are second only to poultry in terms of regional farm income. Florida is the nation's second-largest producer of greenhouse and nursery plants, behind only California, with revenues reaching $1.8 billion in 2006, 5.7 percent lower than in 2005. Imports of nonrooted cuttings from Mexico and Central America depressed domestic volume and prices.

Lower demand resulting from the housing slump, the drought, and higher costs of energy and fertilizers also challenged greenhouse and nursery growers in 2007. In fact, a company spokesman said that as a result of the drought, Georgia-based Pike Family Nurseries, the largest privately owned garden center chain in the country, filed for Chapter 11 bankruptcy in November.

The going gets tough in the livestock industry
The Southeast livestock industry's revenues reached $2.1 billion in 2006. About 80 percent of the region's beef and livestock production occurs in Florida, Tennessee, Alabama, and Georgia. Based on anecdotal evidence, extreme drought and increasing feed costs were dominant factors restraining the industry's performance in 2007.

Related Links
On the Web:
U.S. Department of Agriculture's Economic Research Service

For most of the year, dwindling supplies of hay and other supplemental feeds challenged cattle ranchers, prompting some ranchers to sell their beef cattle sooner than they would have otherwise. According to data from the University of Georgia, regional hay supplies in 2007 were the lowest in 18 years because of the drought. However, exports in 2007 have been strong, driven by demand from Japan and South Korea.

Cotton producers benefit from growing world demand
The region's $2 billion cotton-growing industry is highly dependent on demand from textile mills around the world. In 2007, most cotton-growing areas reported a smaller cotton harvest and lower production than in 2006. This development resulted partly from some cotton growers switching acreage to higher-revenue crops, such as corn for ethanol production, but was also related to the severe regional drought.

According to recent U.S. Department of Agriculture (USDA) estimates, production volume and yields this year are down between 27 percent and 38 percent for the Southeast's major cotton-producing states.

On the bright side, despite recent volatility, cotton prices have stabilized and remain higher than last year. The outlook for U.S. exports is still favorable: Recent USDA estimates indicate that foreign cotton demand will outpace foreign production. Lower foreign cotton production and growing demand, mostly from China, pushed the price of cotton up to more than 70 cents per pound in late 2007, about 17 percent higher than a year earlier.

Sources of Farm Income in the Southeast in 2006
Sources of Farm Income
Source: U.S. Department of Agriculture

Citrus gets squeezed
Florida's citrus crops generated $1.4 billion in 2006, accounting for more than 60 percent of the nation's citrus production. The 2006–07 crop production was the smallest in 17 years, however, as hurricanes, removal of diseased trees, and encroaching development limited the growth of the state's $9 billion industry.

Florida contacts reported that several major citrus-producing counties in the state may lose more than 3,000 acres in 2007 to disease and development. Florida's housing slump, which is expected to continue into 2008, will bring mixed blessings to the state's citrus industry. Less construction means less development encroaching on citrus-producing land.

The Southeast's drought also has affected Florida growers. Despite these problems, October USDA estimates predict that Florida's 2007–08 citrus crop will be 30 percent higher than last season's.

Looking ahead to 2008
Growing global demand for poultry bodes well in 2008 for that industry, which is concentrated in Georgia, Alabama, and Mississippi. The USDA forecasts high export volumes to Russia, China, and Mexico. A relatively weak dollar should boost exports of poultry and cotton, especially if cotton farmers in Alabama, Georgia, Mississippi, and Tennessee are able to overcome the challenges of the severe drought.

The ongoing housing slump will bring good news and bad news to Florida's agricultural industry as lower levels of new construction reduce demand for greenhouse and nursery products, but less construction also means less citrus-producing land lost to development. The drought and high fuel prices will increase the cost of livestock feed, which will pose challenges for ranchers in Florida, Tennessee, Alabama, and Georgia in 2008.